How can we encourage corporations to have greater accountability to the broader community?
What’s the problem?
The role of business and business leaders should play in society is an increasingly important topic as societies’ demand more accountability and businesses are expected to be more in tune with the social context in which they operate. Some call this ‘social licence’. The 'social licence to operate' began as a metaphor to bring attention to the need for companies to earn acceptance from their host communities. The term was coined in the mining industry but is now used extensively by all sections of industry and government as the key driver for Corporate Social Responsibility and community relationships and to underpin the business case for industry engagement with social, community and environmental issues.
Transparency is key to keeping a social licence to operate, and the push for greater transparency is occurring globally. While there are many barriers to greater corporate transparency, it is clear that society increasingly expects businesses to look beyond just the best interests of the corporation. In fact, there is a growing view that societal interests are increasingly becoming a legitimate aspect of doing business. And for many companies, taking account of Corporate Social Responsibility (CSR) and reporting on social and environmental impact has become core to their business.
Seven things you need to know
Environmental and social sustainability risks have a material effect on the long-term viability of companies. Despite this, some companies still believe there is a limited necessity for them to report on sustainability due to the nature of their business. However, this is changing as more and more companies take reporting seriously.
The Australian Council of Superannuation Investors conducts an annual study of which ASX200 companies publicly report on “the management and oversight of material, long term environmental and social risks, the governance of these risks, and broader transformative forces impacting their business environment”.
In 2015, 87% (174 companies) of ASX200 companies provide some level of reporting on sustainability factors (ranging from basic to leading).
There is a strong correlation between company size and the likelihood of a company reporting on sustainability factors, with 97% of the ASX100 reporting on sustainability to some extent, while 77% of the ASX101-200 companies report.
However, only 35 companies in the ASX200 that have at least some of their sustainability reporting data verified by an external party. Again, this is more likely to be larger companies.
Overall, the banks, real estate, and materials sectors within the ASX200 lead the way in sustainability reporting. Conversely, the media and healthcare, retail and consumer services sectors lag behind with at least half of companies at No Reporting or Basic levels.